Contents 19 Imported scrap offers fall 20 Pig iron production down 37% y-o-y in March 21 March sponge iron output down 15.4% on year 22 March crude steel production down 20% y-o-y 25 Will need for personal mobility drive postlockdown auto demand? 27 Real estate sector looks at ways to reboot post lockdown 31 Odisha iron ore offers face low demand 32 Seaborne coking coal offers plunge in April 33 Government updates 38 ArcelorMittal to cut Q2 costs by 30% 40 Fortescue sees strong demand from China rebound 41 Glencore weathers corona chaos 42 Traffic handled by major ports up 1% in FY20 43 Railway’s iron ore handling down 10% in FY20 44 Global crude steel output rise 3% in March on month 45 Tata Steel Q4 output up 6% 46 SAIL crude steel production in FY20 at 16.2 mt 47 BHEL to let out idle plants 49 JSPL records 109% export growth during lockdown 50 AMNS India record crude steel production at 7.23 mt 51 Corporate updates 54 Import export data 58 Price trends 60 Production data
4 Steel Insights, May 2020
6 | COVER STORY
Steeling up to a new normal High costs, low demand to haunt steel makers.
17 | INDUSTRY VIEWS
How steel sector is coping with corona Several corporate heads share their thoughts on impact on industry and outlook on revival.
23 | FEATURE
Indian Steel Association revises steel demand forecast Demand is now expected to shrink by 7.7 percent in 2020 as per a revised forecast.
28 | FEATURE
Study sees up to 70% drop in realty deals in key markets Steep rise in enquiries despite softening of sales.
35 | INTERview
“Refractory industry is fragmented and we see scope for consolidation.” Sameer Nagpal, CEO, Dalmia OCL, spoke on the current challenges and opportunities being faced by the sector.
Cover Story
Steeling up to a new normal
High costs, low demand to haunt steel makers Tamajit Pain & Sumit Moitra
6 Steel Insights, May 2020
Cover Story
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he outbreak of Covid-19 in the Wuhan industrial belt of China and its spread thereafter to other parts of the world, besides leading to loss of lives, went on to wreak havoc on the global economy as well as steel industry, dampening demand, depressing prices, reducing output, leading to loss of profitability and an overall weakening of the entire economic framework. World Steel Association data shows that global crude steel production for 64 countries reporting to the body was down by 1.4 percent to 443 million tons in the first three months of 2020 compared to the same period in 2019. But China’s Purchasing Managers’ Index (PMI) for steel sector is gradually improving, recovering to 42.2 in March from 36.6 a month earlier, and then again rising to 45.9 percent in April. This in a way hints at the possibility of the nation channelising its surplus material through exports and is also supported by the recent raising of export tax rebates on key items of finished steel by China. Nonetheless, India’s import of total finished steel from China declined by 22 percent in during 2019-20. Imports of total finished steel were valued at `44683 crore ($6304 million), while exports were valued at `36726 crore ($5181 million), indicating a wide trade deficit. Global steel prices were all south-bound in March, impacted more by the Covid-19 effect that disrupted demand-supply balance severely. Domestic steel prices were impacted by local supply demand imbalance and influenced by global trends.
How global steel makers are coping
Globally, steel makers have taken a range of responses to tide over the crisis from cutting down on fixed costs commensurate with lower production volume, sharp cut in capital expenditure plans to even job cuts and closure of loss making operations as falling selling prices and lower demand amid rising input costs made many of the marginally profitable and loss making operations financially draining at a time of overwhelming need to conserve resources.
‘Variablising’ fixed costs
ArcelorMittal has reduced fixed costs in March quarter and expects it during AprilJune period to be lower by 25-30 percent below the March quarter. Need for cash has also been reduced by $1billion to $3.5 billon including capex reduction to $2.4 billion. “All non-essential capex has been suspended, while certain high return projects like the Mexico hot strip mill project, agreed Italian projects and certain projects to reduce CO2 emissions will continue. And the overall maintenance capex expense is expected to be lower due to reduced operating rates,” the company told analysts. ArcelorMittal has implemented several cost cutting measures which includes senior management wage cut, overtime reduction, temporary layoffs, cancellation of contractors, reduction in R&D and marketing expenses. “During this exceptional demand situation, an essential action is to reduce costs as quickly as possible, to a level consistent with the reduced output. The concept of ‘variablising’ fixed costs is a strategy the company has effectively deployed in previous exceptional environments,” the company recently told analysts. “It seems likely that over the course of this month countries will start to announce details of their exit strategies. Whilst these are likely to be an easing, not an immediate ending of lockdown, construction and manufacturing are expected to be among the first sectors to be permitted to re-start operations and indeed we are seeing signs of customers re-starting production,” Lakshmi Mittal, ArcelorMittal Chairman and CEO, said. Auto steel makers: turning lean
Steel makers for automobile industry like Thyssenkrupp, Nippon Steel and also Posco have been hit hard as the pandemic has completely shutdown the car makers and even when economies open, demand is likely to remain muted. Many of them are either partly closing facilities or preparing to do so. Thyssenkrupp will shut down its
“It seems likely that over the course of this month countries will start to announce details of their exit strategies. Whilst these are likely to be an easing, not an immediate ending of lockdown, construction and manufacturing are expected to be among the first sectors to be permitted to re-start operations and indeed we are seeing signs of customers re-starting production.” Lakshmi Mittal, ArcelorMittal Chairman uncompetitive springs and stabilizers business unit in Germany by the end of 2021. Around 490 jobs will be impacted by the restructuring of sites at Olpe and Hagen “The restructuring of the two sites is an unavoidable and right step to return the business to profit. The two plants were no longer competitive in the current setup. Price levels in the respective product segments are too low and overcapacities on the market too high. That is why we have decided to combine the remaining production and development activities at one site and
Steel Insights, May 2020
7
INDUSTRY VIEWS
How steel sector is coping with corona: Industry views Steel Insights
To stop the pandemic on its vicious path, the nation has been put under extended lockdown. While steel industry has been barely able to function under such a constraints, absence of workers or logistical support are creating roadblock. In this issue we continue to seek important insights from the key players in this sector on how they are bravely facing up to the challenge.
How do you see the current situation evolving and impacting the industry as a whole?
During this pressing time when the whole world in under an economic shock and all industries are facing equally analogous issues, steel industry is no exception. The industry is facing turmoil in terms of raw materials availability, supply disruptions and demand fluctuations. There has been a drastic decline in the consumption pattern during this pandemic and every industry has faced the wrath of it. In this testing time, Calderys stands strong with its customers providing them with the right set of refractory solutions to meet the production bottlenecks and uncertain demand. We believe that the government is playing a vital role to contain this pandemic and bring back normalcy in operations to improve the consumption cycle and boost the economy. What could be your business continuity plans?
We have our ears on the ground listening to all problems, pain areas and requirement our customers’ post lockdown and have already chalked out a contingency plan to help them return to normalcy in their production operations. The Lockdown has helped us buy some time from our busy schedule to ponder on improvement programs, technological up-gradation and also increased our appetite to take risks by accepting innovative home-grown solutions for age-old traditional problems. We have launched digital initiatives like the webinar and remote inspection in order to promote contactless processes and we are still able to provide the best in class products & services to our customers. We have recently conducted an ‘Ask the Experts! - Live Panel Discussion’ with the industry experts for iron and steel makers on ‘Impact of Covid on Blast Furnace Operations and Do’s & Don’t of refractory maintenance’ which was very well received by our customers. How you are coping with demand slowdown and when to expect demand pickup?
Such a pandemic has occurred almost after a century post Spanish
“Lockdown has helped us to ponder on improvement programs, tech up-grades and increased our appetite to take risks”
Ish Mohan Garg , VP & MD, Calderys South West Asia
Flu where most of the developed nations are facing a severe health and economic crisis. The clock is ticking and the need of the hour is to keep our people safe and we should take all possible measures to bring the situation back to normalcy. So far, our governing administrations have been very proactive in taking all possible measures to restrict the spread of this pandemic in our country. We are optimistic that in the coming months and weeks we would be able to contain this threat. We expect the demand to start picking up gradually and the economy settles down back to its original pristine. Since last 45 day we are coping with negligible sales but, our passionate teams are holding the fort strong and are geared up to cater to all requirements of our customers. We are working on building our internal capability by improving our processes and optimizing our overheads. We believe that with accurate indigenous refractory solutions, we can reduce import dependency and provide ‘Best of the Worlds’ solutions through ‘Make in India’ to our customers. We are keeping a close watch on customer refractory requirements to address the critical areas in the Iron and Steel industry.
Steel Insights, May 2020
17
FEATURE
Indian Steel Association revises steel demand forecast
Steel Insights Bureau
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he Indian Steel Association (ISA) has significantly revised downwards India’s steel demand forecast for
2020. Demand is now expected to shrink by 7.7 percent in 2020 as per a revised forecast. This is in contrast to a projection of 5.1 percent positive growth made in February. ISA estimates finished steel demand in India to fall in calendar year 2020 to around 93.7 million tons from an estimated actual of
101.5 million tons in 2019, a decline of 7.7 percent or roughly by about 8 million tons this calendar year. Interestingly, ISA had estimated in February that the steel demand in calendar year 2020 would grow by 5.1 percent to touch 106.7 million tons. But the association has now revised the steel demand forecast to 93.7 million tons. In other words, ISA estimates that the spread of the pandemic and subsequent lockdown will lead to steel demand declining by 13 million tons or by 12.2 percent from a business as usual scenario.
Finished steel demand in India to fall in calendar year 2020 to around 93.7 million tons from an estimated actual of 101.5 million tons in 2019. Steel Insights, May 2020
23
FEATURE
Will need for personal mobility drive auto demand after lockdown? Millennials may avoid public transport Sumit Maitra
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s India slowly emerges from extended period of lockdown eager to restart their life, join offices and businesses and start travelling, the millennials and those who can afford would prefer to have their own vehicles in which they can travel in safe distance from others. It’s one of the positive outcomes of the current pandemic that many automobile sector senior management officials are believing in that might drive significant demand post the lockdown, according to several analysts who cover the industry. “There is a good reason to believe that people who were availing shared mobility because of affordability will now avoid public transport and therefore look to buy a car. But it is important to keep in mind that affordability will play a big factor,” said an auto analysts. “We expect three opportunities to emerge from this adversity: possible reset of global automotive supply chain, vendor consolidation and M&As, and shift from public to private transport,” another analyst commented. While questions remain as to whether people would indeed be able to afford in large enough numbers to buy new or even second hand vehicles in times of income and livelihood risks, analysts agree that positive demand impact would be felt largely on twowheelers post lockdown. Demand recovery
While the first quarter of the fiscal Y21 is expected to be a wash-out, with most of the
automakers reporting nil domestic sales, demand recovery should happen around the festive season from September onwards, observers said. The pace of recovery would depend on several factors such as (a) time taken to return to normalcy, (b) stimulus from the government, and (c) extent of job/income losses. Restarting ops remains a challenge
Factories might have been allowed to start work but automobile manufacturing is a complex process spread over multiple units. Indian Original Equipment Makers operate primarily out of nine states, of which Maharashtra, Tamil Nadu, Haryana, Karnataka and Gujarat are major states. Within these states, major clusters with developed ecosystems are in Pune, Delhi NCR, Chennai and Bengaluru. All these major automotive clusters are listed as hotspots (Red Zone), implying gradual normalisation of production. Import content in the Indian automotive industry should range between 15-20 percent for key OEMs. Large part of these imports is from China (27 percent of imports), EU including the UK (23 percent), South Korea (10 percent), Japan (9 percent) and the US (7 percent). While China is returning to normalcy in terms of production, impact on imports from EU and the US is likely to be felt in MayJune, analysts said. While the mother plant, usually owned by large auto companies like Tata Motors or Hyundai or Bajaj Auto, these are mainly assembly joints while components are made
Major clusters with developed ecosystems are in Pune, Delhi NCR, Chennai and Bengaluru. All these major automotive clusters are listed as hotspots (Red Zone), implying gradual normalisation of production. elsewhere spread over a large number of plants many of which couldn’t have been able to start operations due to multiple factors including being located at Red Zone or for other factors like failing to get back workers. Absence of a single component can drive the assembly of a large vehicle troublesome as companies need to look for alternative sources. Bajaj Auto, whose factories are located at Maharashtra, is finding it difficult to operate its plant located at the worst affected state in the country. Manufacturing operations of auto OEMs were suspended on March 23, in line with Government directives of lockdown. Subsequent to the new directives issued by the Government on May 1, with regard to resumption of manufacturing, nearly all OEMs have resumed partial operations or are planning to resume within a week. However, utilisation levels are currently low considering that OEMs have started with single shift operations (against two shifts under normal circumstances) and maintaining social distancing norms at facilities. Companies such as Maruti, Hero Motocorp, Bajaj Auto, Escorts have at least a month’s inventory which will cushion the slow production ramp-up to a certain extent. Barring a few states, dealerships have to take approval from local authorities to
Steel Insights, May 2020
25
FEATURE
Study sees up to 70% drop in realty deals in key markets Steep rise in enquiries despite softening of sales
“The industry was highly hopeful that 2020 will be a turnaround year where trends will revive. However, after the lockdown following the outbreak of Coronavirus, industry activities have come to a momentary halt. Construction activities have been suspended and site visits are not taking place.”
Ankit Kansal, founder and MD, 360 Realtors
Steel Insights Bureau
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ovid-19 continues to undermine growth in the Indian realty sector, as demand has softened in most of the major cities, as per a report by 360 Realtors. The distress is more visible in markets like Gurgaon, where a sharp 70 percent monthly reduction in transaction volumes has been registered. However, in other IT-
28 Steel Insights, May 2020
centric markets like Pune, & Bangalore, the deceleration is more indistinct, as realtors can sell properties through online platforms. Interestingly, there is a steep rise in enquiries with Pune witnessing monthly enquiries growing by 220 percent, while in Bangalore the rise is pegged at 140 percent, the study revealed. “The industry was highly hopeful that 2020 will be a turnaround year where trends
will revive. However, after the lockdown following the outbreak of Coronavirus, industry activities have come to a momentary halt. Construction activities have been suspended and site visits are not taking place,” Ankit Kansal, founder and MD, 360 Realtors said. Most of the new launches have either been suspended or have been delayed. Developers are taking a backseat & are back to the drawing board to relook into their sales strategy. However, there have been instances of online launches. Numerous leading brands such as Godrej & Prestige embraced the digital way. There has also been considerable increase in enquires, as people are getting extra time to research & learn about properties.
INTERNATIONAL
Fortescue sees strong demand from China rebound Raises iron ore shipment guidance Steel Insights Bureau
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xpecting steady post Covid recovery in China and witnessing strong ongoing demand there, Aussie iron ore mining giant Fortescue has raised FY20 guidance to a range of 175-177 million tons up from the previously guided range of 170-175 mt. “Fortescue is a core supplier of iron ore to China and we see strong ongoing demand for our products and anticipate a steady recovery in economic activity in that market. While the global economic outlook remains uncertain, our balance sheet has never been stronger and we continue to generate sustained cashflows and jobs, invest in growth and focus on delivering returns to our shareholders,” Fortescue Chief Executive Officer, Elizabeth Gaines, said while announcing the group’s March quarter result on April 30. Fortescue Metals Group’s shipments of iron ore to China remained largely unaffected in the first quarter of 2020. “Strong operating performance in the March quarter has delivered record shipments, increasing ten per cent compared to the prior comparable quarter, and a two per cent reduction in C1 costs maintaining our industry leading cost position. This result underpins an upgrade to our full year guidance for shipments,” she said. For the group costs of 13.27/wmt were two percent lower than the prior comparable period on sustained cost management. The six per cent increase compared to Q2 of FY20 was predominantly driven by the higher strip ratio in the quarter. China recovery
Chinese crude steel production was resilient in the first quarter, reaching 234.5 mt, 1.2 percent higher on year, according to China’s
40 Steel Insights, May 2020
National Bureau of Statistics. China’s iron ore demand was supported by continued strong steel production and reduced consumption of scrap steel, while seaborne iron ore supply was affected by weather-related disruptions. Total iron ore stocks at Chinese ports at March 31 were 117 mt, 10 mt lower than December 31. Strength in steel production supported demand for Fortescue’s products with average revenue of $72.69/dmt in Q3 of FY20, representing revenue realisation of 82 percent of the average Platts 62 percent CFR Index price of $89.00/dmt in the quarter with Fortescue’s contractual price realisation averaging 83 percent of the Index. Exploration
♦♦ Fortescue expects full year exploration expenditure to come down to $120 million, $20 million lower than earlier expectations due to COVID-19 impacts. Exploration expenditure for Q3 FY20 was $18 million ♦♦ Iron ore exploration in the Pilbara is ongoing, with activity in the quarter focussed on resource definition drilling at Eliwana in the Western Hub region. Noncritical heritage surveys were suspended in March in response to Covid-19 ♦♦ All field exploration activities in the Paterson, Rudall and Goldfields regions of Western Australia, together with activities in New South Wales and South Australia were temporarily suspended in March ♦♦ Exploration and field activities in Ecuador and Argentina were temporarily suspended in March to align with Government mandated lockdowns. Assessment of previous drilling activities and various geological studies are ongoing.
“Fortescue is a core supplier of iron ore to China and we see strong ongoing demand for our products and anticipate a steady recovery in economic activity in that market.” Fortescue Chief Executive Officer, Elizabeth Gaines Iron ore projects
Eliwana The Eliwana Mine and Rail project achieved key milestones in the quarter including the completion of earthworks on stage one of the railway in preparation for first track laying, the first steel erection for the ore processing facility and completion of the permanent village and aerodrome. “Fortescue is continuing to work closely with its contractors and suppliers to mitigate any impact of Covid-19 on project schedule. Site works are ramping up with construction peak still expected around mid-year.” Iron Bridge The $2.6-billion Iron Bridge Magnetite project is progressing on schedule and budget, with first concentrate production planned in the first half of calendar year 2022. Key project deliverables in the June quarter include completion of the mine access road and permanent village earthworks and in the second half of the calendar year will focus on commencement of site construction and major module fabrication. Capital expenditure in FY20 is now expected to be at the lower end of the guided range of $300-$400 million.
66 Steel Insights, May 2020
Tear along the dotted line
Tear along the dotted line
